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Canada Emergency Wage Subsidy (CEWS)- 75% Subsidy

On April 11, 2020, the Federal government enacted Bill C-14, which contained the detailed legislation for the Canada Emergency Wage Subsidy (CEWS). This subsidy would cover 75% of eligible salaries and wages for qualifying businesses, for employment between March 15, 2020 and June 6, 2020.  Following is a summary of the key details of the program:

Who qualifies for the Program?

The program is available to all eligible employers based on their eligible remuneration paid to eligible employees during certain claim periods. The employer must have had an active payroll account with Canada Revenue Agency as of March 15, 2020, and the entity must meet the revenue decline test detailed below.

Eligible employers include:

  • Taxable corporations;
  • Individuals;
  • Partnerships- where the members are all eligible entities;
  • Non-profit organizations; and
  • Registered charities.

The legislation defines eligible remuneration to include:

  • Wages, salaries and other remuneration, like taxable benefits but it specifically excludes severance and stock option benefits; and
  • Fees, commissions, or other amounts for services provided to “eligible employees”.

An eligible employee is defined as an individual employed in Canada, by the employer, in the claim period.  An eligible employee cannot be without remuneration from the employer in respect of 14 or more consecutive days in the claim period.

Revenue decline test:

In order for an employer to qualify as an eligible employer for purposes of the CEWS, It must have suffered a decline in its revenues.  There are three periods which have currently been announced: March 15 – April 11, April 12 – May 9, and May 10 – June 6.  Eligibility for the CEWS will be determined on a period by period basis. For the first period, the required decline in revenues is 15%, for subsequent periods the required decline is 30%. 

 

 

The table below summarizes the claim periods as well as the eligibility threshold and the reference period:

Revenue is to be calculated using the employer’s normal accounting methods; however an election can be made to determine revenue on the cash method. Please keep in mind that once an election is filed, the chosen method must be used for all claim periods.

The legislation defines “revenue” as the inflow of cash, receivables, or other consideration arising in the course of the ordinary activities of the eligible employer- generally from the sale of goods, the rendering of services, and the use by others of resources of the eligible employer- in Canada in the particular period, subject to a few restrictions:

  • Revenue excludes extraordinary items;
  • Revenue excludes any payments from the 10% temporary wage subsidy or other program; and
  • Amounts derived from persons or partnerships not dealing at arm’s length with the eligible employer are excluded from the calculation of revenue.

There are special rules to provide relief for corporate groups when calculating revenue. The affiliated group can elect to compute the decline in revenue on a consolidated basis, provided all members of the group elect to do so jointly. Certain entities receiving substantially all (generally 90% or more) of their revenue from non-arm’s length sources will be permitted to determine their decline in revenue based on the decline in the non-arm’s length parties’ revenues from which it earned revenue.

Eligibility period for revenue testing:

As noted in the table above, employers have the option to either use same period last year (i.e. March 2019 for period 1) or use an average of January and February 2020. If the employer was carrying on business in March 2019 and elects to use the average of January and February 2020, this reference period must be used for all claim periods under CEWS.

 

Future Eligibility

Once an employer meets the criteria in respect of a revenue decline, the revenue decline criteria for the next period of the program will be met automatically.  For example, an employer with a revenue drop of more than 15% in March would qualify for both the first and second periods of the program, covering remuneration paid between March 15 and May 9.  If this employer did not meet the 30% decline in April, it would not qualify for CEWS in the third period unless it had revenue declines of at least 30% in May of 2020. 

How much is the subsidy?

The amount of the subsidy is calculated on an employee by employee basis as follows:

  • For arm’s length employees who were employed before March 15, 2020, the subsidy available is calculated as the greater of:
    • 100% of the eligible remuneration paid; and
    • 75% of the pre-crisis (January 1 – March 15, 2020) weekly remuneration paid;
    • Subject to a maximum of $847 per week.

 

  • For non-arm’s length employees who were employed before March 15, 2020 and arm’s length employees hired after March 16, 2020, the subsidy is the least of:
  • 75% of the actual amount of remuneration paid; and
  • $847 per week

 

  • There is no subsidy available for non-arm’s length employees hired after March 16, 2020;

 

  • In addition to the above, if the employee is employed but not working (ie on leave or furlough) the CEWS will also cover the full employer portion of CPP and EI premiums.

Funds received:

The wage subsidy received by an employer will be considered government assistance and will be included in the employer’s taxable income.

Anti-avoidance measures

As mentioned by the Finance Minister and Prime Minister there are stiff and severe penalties for those that take advantage of the benefits. The legislation specifically mentioned the following:

  • 25% penalty of the value of the subsidy claimed for employers manipulating their revenues;
  • 50% of an excessive claim for false statements or gross negligence or as much as a 200% fine and five years’ imprisonment for fraud/tax evasion.

The legislation also gives the Minister the right to disclose the name of any applicant to the program.

Interaction with the 10% Temporary Wage Subsidy

Any benefit from the 10% wage subsidy received by the employer would reduce the amount available to be claimed under the CEWS in that same period.

Interaction with the EI Work-Share program

As with the 10% wage subsidy, the CEWS is reduced by any EI amounts received by employees under the Work Share Program.

Interaction with the Canadian Emergency Response Benefit (CERB)

An employer would not be eligible to claim the CEWS for remuneration paid to an employee in a week that falls within a claim period for which the employee is unemployed for at least 14 consecutive days. If the employee has received CERB in respect of a period in which they were not unemployed for at least 14 consecutive days, the employee will be required to repay CERB received for that period.

How do I Apply?

The application process will be available online through the Canada Revenue Agency’s My Business Account portal within 2-4 weeks. For the time being, we encourage employers to sign up for My Business Account. We will continue to monitor updates on this subsidy’s application process and will provide additional information as it becomes available.

For additional information or if you have questions related to this subsidy, please contact your Daye & Partners representative.